Great Corporate Strategies Thrive on the Right Amount of Tension

Executive Summary

After expending considerable effort on formulating a strategy, most executives would like to see it fully executed. Deviations from the strategic plan are often assumed to be detrimental to corporate performance. However, compliance with the strategy doesn’t necessarily correlate directly to performance, either. The gap between strategy and the execution of that strategy is often referred to as “strategic dissonance.” You can also think of it as “strategic stress.” Research shows that stress can increase an individual’s performance up to a certain point, but not beyond that point. In a similar vein, “strategic stress” can improve your company’s performance – up until a point. If there’s too little stress being placed on your strategy – i.e. the company and its employees are going in too many directions and no one is asking challenging questions about the strategic direction of projects – there’s little chance of your strategy actually being executed. Likewise, if there’s too much stress being placed on your strategy, where employees are blindly implementing the strategy without asking challenging questions about it, they’ll be equally blind to emerging risks or opportunities. The challenge is to find the sweet spot where employees challenge the strategy while not moving the organization too far away from its original strategic domain.

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After expending considerable effort on formulating a strategy, most executives would like to see their company’s strategic plans fully executed. Deviations from the strategic plan are often assumed to be detrimental to corporate performance. However, compliance with the strategy doesn’t necessarily correlate directly to performance.

The gap between strategy and the execution of that strategy is often referred to as “strategic dissonance.” We like to call it “strategic stress.” The “Yerkes-Dodson Law,” which has been used in research that examines the relationship between stress and individual performance, shows that stress increases performance up to a certain point, but not beyond that point. In a similar vein, “strategic stress” can improve your company’s performance – up until a point.

Strategic stress is characterized by three zones, which executives must consider and effectively manage:

Strategic Burnout (too much strategic stress). Excessive strategic stress is typically a result of one or more of the following causes: (1) Too much autonomy, i.e. employees that follow their own agendas at the expense of corporate alignment (2) unrealistic strategic plans, i.e. the organization is not able to live up to the plans put forth by top management, and (3) market dynamics, i.e. external developments that push the organization in other directions than what was initially planned. When strategy execution moves too far away from the initial strategy, the link between the plan and reality is broken, resources are wasted, and the organization lacks guidance. This scenario is characterized by many divergent projects, fragmented activities that have little in common with the initial strategic plan, and projects that do not fit together. The outcomes of such anarchy are random and, as such, unpredictable. Such organizations experience strategic burnout. Strategic burnout can occur if prophets and experts (that is, employees who enthusiastically work on projects outside the predefined strategy) dominate the organization without the counterweight of executors and gamblers, who drive projects related to the planned strategy (here, executors implement low-risk strategic projects, and gamblers bet on high-risk projects that are within the confines of the predefined strategy).

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An example of strategic burnout can be found at Lego around 2004. The company had expanded into too many different and overly complex projects, which essentially created high levels of strategic stress. The multitude of projects drove the company in numerous directions at the same time. The resulting complexity was an underlying cause of the company’s strategic burnout. A turnaround subsequently lowered strategic stress to a productive level by discontinuing many of their seemingly unrelated projects, re-focusing on their core business, as well as streamlining operational processes that improved coordination activities.

Strategic Boredom (not enough strategic stress). When strategy execution aligns perfectly with initial plans, the organization does not experience sufficient strategic stress. This results in strategic boredom. The concept of strategic boredom does not necessarily suggest that the content of the strategy is boring, but that the conformity and limited challenges give rise to the risk of strategic complacency, which may result in rigid execution that is blind to emerging risks or opportunities. Strategic boredom can occur if executors and gamblers dominate the organization without the counterweight of prophets and experts who push for new ways to drive the business.

An example of strategic boredom is illustrated in Clayton Christensen’s famous work on the disk-drive industry. Leading disk-drive manufacturers found it nearly impossible to maintain their success when the technology and market structure began to change. In other words, their previous success meant that employees failed to challenge the once-successful strategy—that strategy was instead challenged by new market entrants.

Strategic Sweet Spot (just the right amount of strategic stress). When strategy execution differs moderately from the initial plan, the organization is in the strategic sweet spot. This scenario is characterized by a sufficient balance between alignment and nonconformity, which is needed to ensure strategic success. The sweet spot can be reached if there is a balance among the four project-manager types: executors, experts, gamblers, and prophets. The optimal amount of each will depend on the specific organization and the situation, and on changes in technologies, customer needs, and the competitive context.

An example of the strategic sweet spot is documented in Gary Hamel’s study of a gang of unlikely rebels who woke IBM up in time to catch the internet wave. Certain project leaders at IBM started an initiative to build a community of web fans, i.e. early adopters of the web, that would subsequently transform the company. The group developed an internal “Get Connected” manifesto that helped guide and leverage the web at IBM. Moreover, a variety of popular, public websites for sports events were developed to illustrate the potential of the novel technological development. The strategic stress generated by these employees was enough to change the organization while not moving it too far away from its original strategic domain.

What can you as a leader do to ensure that your strategy is experiencing just the right amount of stress? We suggest the following:

Adopt a mindset for stress: Make sure that you do not view strategic stress as a problem from the outset—you want your strategy to be subjected to some stress. Therefore, emphasize the value of both challenging and executing the strategy when communicating with your employees.

Set up for stress: Proactively think about how emerging autonomous projects can influence your strategy and its execution. Build structures and processes in the organization such as hackathons and innovation days that provide one-day bursts of autonomy to enable employees to experiment with alternative projects. By providing a clearly limited space for employee autonomy, you ensure that you won’t step into the “too many different projects” pitfall, potentially leading to a strategic burnout.

Diversify for stress: Employ a mix of people so that your organization can carry out different projects, some of which focus on executing the strategic plan and others that challenge that plan.

Too much stress to your strategy can be detrimental; but a sufficient amount of strategic stress ensures that your organization moves forward efficiently, and keeps you alert and responsive to emerging developments. Just like a diamond is the valuable outcome of constant pressure from multiple sides, strategic success results from balanced pressure on your strategy.

Carsten Lund Pedersen is Postdoc at the Department of Strategic Management and Globalization at Copenhagen Business School, where he researches in project-based strategy, employee autonomy and matching employee types with business development projects.

Thomas Ritter is a Professor of Market Strategy and Business Development at the Department of Strategic Management and Globalization at Copenhagen Business School, where he researches business model innovation, market strategies, and market management.